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1 2Q’06 Earnings ReleaseJuly 20, 2006
July 20, 2006
Second Quarter Earnings Release
2 2Q’06 Earnings ReleaseJuly 20, 2006
This report contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of fact, that address activities, events or developments that we or our management intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements are based on management’s assumptions and assessments in light of past experience and trends, current conditions, expected future developments and other relevant factors. They are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by our forward-looking statements. Our forward-looking statements are also subject to risks and uncertainties, which can affect our performance in both the near- and long-term. We identify the principal risks and uncertainties that affect our performance in our Form 10-K and other filings with the Securities and Exchange Commission.
Forward Looking Statements
3 2Q’06 Earnings ReleaseJuly 20, 2006
• Financial Performance– 12% Sales Growth, 5% Organic Growth– 110 bps Margin Expansion– 75% EPS Growth, 27% Adjusted (1) EPS Growth– $786M Free Cash Flow, $903M YTD
• Business Highlights– AERO – Commercial, Defense Up; Space Down– ACS – 9% Organic Growth; Acquisition Synergies Ahead of Plan– TS – Turbo Performance Favorable– SM – 11% Organic Growth Base Business, Great Quarter for UOP
• Capital Redeployment– FT Safety & Analysis Divestiture, Gardiner Groupe Acquisition– Repurchased 12M Shares; Average Fully Diluted Share Count 830M
• Raising EPS Guidance to $2.48 – 2.53
Strong 2Q Financial Performance And Outlook
2Q06 Overview
(1) Reflects 2Q05 tax charge for cash repatriation ($0.18) and Income from Discontinued Operations ($0.03), as well as 2Q06 FAS 123R stock option expense ($0.02)
4 2Q’06 Earnings ReleaseJuly 20, 2006
($M) 2Q05 2Q06Sales $7,028 $7,898
Segment Profit $846 $1,034- Margin % 12.0% 13.1%
EPS, Reported $0.36 $0.63
EPS, Adjusted (1) $0.51 $0.65
Free Cash Flow $410 $786
• 75% Growth
• 27% Growth
• Up 92%• 151% Conversion
2Q Financials
Strong Financial Performance
• 22% Growth
(1) Reflects 2Q05 tax charge for cash repatriation ($0.18) and Income from Discontinued Operations ($0.03), as well as 2Q06 FAS 123R stock option expense ($0.02)
• 12% Growth7% Acq./Div.5% Organic
No F/X Impact
• +110 bps
5 2Q’06 Earnings ReleaseJuly 20, 2006
2Q Earnings Per Share Walk
EPS2Q05 EPS $0.36Tax Charge for Cash Repatriation 0.18Discontinued Operations (0.03)
2Q05 EPS, Adjusted $0.51
2Q06 EPS ChangeSegment Profit (1) 0.17
Equity Income (1,2) (0.03)Stock Options Expense (1) (0.02)Other (1,3) -
2Q06 EPS $0.63
Segment Profit Drives EPS Growth
(1) Estimated; calculation on pre-tax items uses 26.5% tax rate and 2Q06 diluted shares(2) Due to 4Q05 acquisition of partner’s share of UOP joint venture, UOP financial results included in Specialty Materials segment results(3) Other includes all items below segment profit, other than Equity Income and Stock Options Expense, and includes share count
6 2Q’06 Earnings ReleaseJuly 20, 2006
Aerospace
Continued Growth And Positive Outlook
2Q05 2Q06
Sales $2,651 $2,686
Segment $409 $413Profit
Margin 15.4% 15.4%
Business Highlights+ Commercial OE up 8%
Demand supports OEM productionHON A380 components on track
+ Defense up 4%– Commercial AM down 4%
AT&R Mechanical Spares up 4%Unfavorable R&O settlement Anticipated decline in FAA Mandate sales
– Space down 12%
• Segment Profit up 1%Margin % flat
• Volume/Price 0.6 pts.• Productivity 1.9 pts.
– Operational efficiency 3.4 pts– Reorganization benefits realized– Engineering (0.9) pts– R&O Settlement (0.6) pts
• Inflation (2.5) pts.
Financial Highlights
• Sales up 1%• Air Transport & Regional
OE up 2%AM down 5%
• Business & General AviationOE up 17%AM down 2%
• Defense & Space up 2%
($M)
7 2Q’06 Earnings ReleaseJuly 20, 2006
Automation And Control Solutions
Great Quarter
Business Highlights+ Products 7% organic growth
+ Solutions 12% organic growth
+ Solutions orders up double digits
+ Gardiner Groupe acquisition
+ FT Safety & Analysis divestiture
• Segment Profit up 19%30 bps margin expansion
• Volume/Price 1.7 pts.• Acq./Div. (0.1) pts.• Productivity 1.5 pts.
– Operational efficiency 1.9 pts.– ERP (0.4) pts.
• Inflation (2.8) pts.
2Q05 2Q06
Sales $2,387 $2,766
Segment $242 $287Profit
Margin 10.1% 10.4%
Financial Highlights
• Sales up 16%Organic 9%; Acq./Div. 7%Minimal FX Impact
• Products up 17%• Solutions up 14%
($M)
8 2Q’06 Earnings ReleaseJuly 20, 2006
Gas Detection BusinessFirst Technology (1Q06)
Purchase Price $723
Sale Proceeds (93)
Net Price $630
Annual Synergies- Planned $21- Latest Estimate $30
EBITDA Multiple- 2006E (at purchase) 12.4X- Net of Sale Proceeds/Synergies 7.9X
Building Out Attractive New Space
($M)Zellweger (2Q05)
Purchase Price $226
Annual Synergies- Planned $13- Latest Estimate $13
EBITDA Multiple- 2005 (at purchase) 9.0X- Net of Synergies 6.1X
Gas DetectionNet Price $856
EBITDA Multiple- 2006E (at purchase) 11.2- Net of Synergies 7.1
• Synergies exceeding model
• Non-core sold for more than planned
• Important new growth platform
9 2Q’06 Earnings ReleaseJuly 20, 2006
Transportation Systems
Winning New Business And Driving Productivity
Business Highlights+ HTT platform wins (>1.7L, <1.7L, Gasoline)
+ Class 8, ahead of YE emissions change
+ New product introductions in Asia
+ HTT Europe demand as expected
Diesel penetration, LV production flat
– CPG market conditions
2Q05 2Q06
Sales $1,195 $1,193
Segment $161 $165Profit
Margin 13.5% 13.8%
Financial Highlights
• Sales flat• Turbo up 5%• CPG down 7%
Consumer spending impactFriction NA OE exit
• Segment Profit up 2%30 bps margin expansion
• Volume/Price (0.4) pts.• Productivity 2.6 pts.• Inflation (1.9) pts.
($M)
10 2Q’06 Earnings ReleaseJuly 20, 2006
Specialty Materials
Great Quarter
Business Highlights
+ UOP project wins
+ Fluorines seasonal demand
+ Specialty Products volume
+ Price/Raws spread net favorable
– 2H UOP impacted by 1H timing Royalties/catalyst sales
2Q05 2Q06
Sales $795 $1,253
Segment $78 $217Profit
Margin 9.8% 17.3%
Financial Highlights
• Sales up 58%Organic 11%; Acq./Div. 47%
• Fluorine Products up 9%• Specialty Products up 17%• Resins and Chemicals down 9%
Up 6% Excl. Sale of Carpet Fiber assets
• Segment Profit up 178%750 bps margin expansion
• Volume/Price 3.5 pts.• Productivity 0.4 pts.• Inflation (2.7) pts.• Acq./Div. 6.3 pts.
($M)
11 2Q’06 Earnings ReleaseJuly 20, 2006
($B)
Reflects 1H Performance And 2H Outlook
2006 Segment Analysis
AERO
ACS
TS
SM
Total
V’05
~$11.0
11.0
4.5
4.5
~$31.0
+12%
~17.5%
11.0%
13.0%
13.0%
~13.4%
+120 bps
Sales
• On track
• Increased sales
• Turbo better than expected
• Step change vs. 2005
• Segment profit up ~$700M
Segment Margin Comments
12 2Q’06 Earnings ReleaseJuly 20, 2006
($B) 2005 2006E V’05
Sales $27.6 ~$31.0 12%Ex. Acquisitions/Divestitures 6%
Segment Profit $3.4 ~$4.1 22%- Margin % 12.2% ~13.4% 120 bps
EPS, Reported $1.92 $2.48 - 2.53 29 - 32%
Free Cash Flow $1.8 $2.1 - 2.3 20 - 31%Conversion 107% +100%
2006 Financial Summary
3Q06 Sales ~$7.8BEPS $0.62 – 0.64
13 2Q’06 Earnings ReleaseJuly 20, 2006
Impressive Performance
3Q05 3Q06 V’05EPSReported EPS $0.54 $0.62 - 0.64 15 - 19%Discontinued Operations (0.04) -Stock Option Expense - 0.02
Adjusted $0.50 $0.64 - 0.66 28 - 32%
2H06 Guidance
4Q05 4Q06 V’05EPSReported EPS $0.61 $0.71 - 0.74 16 - 21%Discontinued Operations (0.04) -Stock Option Expense - 0.02
Adjusted $0.57 $0.73 - 0.76 28 - 33%
14 2Q’06 Earnings ReleaseJuly 20, 2006
Honeywell Outlook
• End Market Conditions Favorable
• Macro Trends Support Business Growth
• Great Breadth of Technology, Products and Services
• Organic Growth and Margin Expansion Across Company• Aero – Program Wins, Extended Cycle
• ACS – Global Expansion, Customer Focus
• TS – Program Wins, New Markets/Technologies
• SM – UOP, Strong Cycle
• Strong Cash Generation Capability
• Continued Disciplined Cash Deployment
Confident In Business And Financial Outlook
15 2Q’06 Earnings ReleaseJuly 20, 2006
AppendixReconciliation of non-GAAP Measures
to GAAP Measures
16 2Q’06 Earnings ReleaseJuly 20, 2006
($M ) 2Q05 2Q06Sales $7,028 $7,898Cost of Products and Services Sold (5,503) (6,027)Selling, General and Administrative Expenses (935) (1,086)
Operating Income $590 $785
FAS 123R, Stock Option Expense $0 $16Repositioning and Other Charges 111 115Pension and OPEB Expense 145 118
Segment Profit $846 $1,034
Operating Income $590 $785Sales $7,028 $7,898Operating Income Margin % 8.4% 9.9%
Segment Profit $846 $1,034Sales $7,028 $7,898Segment Profit Margin % 12.0% 13.1%
Reconciliation of Segment Profit to Operating Income and Calculation of Segment Profit and Operating Income Margin
(1)
(1)
(1) Included in costs of products and services sold and selling, general and administrative expenses
÷
÷
(1)
17 2Q’06 Earnings ReleaseJuly 20, 2006
($M ) 2Q05 2Q06Cash Provided by Operating Activities $569 $935Expenditures for Property, Plant and Equipment (159) (149)Free Cash Flow 410 786
Cash Provided by Operating Activities $569 $935Net Income 302 521Operating Cash Flow Conversion % 188% 179%
Free Cash Flow $410 $786Net Income 302 521Free Cash Flow Conversion % 136% 151%
÷
÷
Reconciliation of Free Cash Flow to Cash Provided by Operating Activities and Calculation of Cash Flow Conversion
18 2Q’06 Earnings ReleaseJuly 20, 2006
($B) 2005 2006ESales $27.6 $31.0Cost of Products and Services Sold (21.5) (23.9)Selling, General and Administrative Expenses (3.7) (4.0)
Operating Income $2.4 $3.1
FAS 123R, Stock Option Expense 0.0 0.1Repositioning and Other Charges 0.4 0.4Pension and OPEB Expense 0.6 0.5
Segment Profit $3.4 $4.1
Operating Income $2.4 $3.1Sales $27.6 $31.0Operating Income Margin % 8.7% 10.0%
Segment Profit $3.4 $4.1Sales $27.6 $31.0Segment Profit Margin % 12.2% 13.4%
Reconciliation of Segment Profit to Operating Income and Calculation of Segment Profit and Operating Income Margin
(1)
(1)
÷
÷
(1)
(1) Included in costs of products and services sold and selling, general and administrative expenses
19 2Q’06 Earnings ReleaseJuly 20, 2006
($M) 2005 2006ECash Provided by Operating Activities $2,442 $2,900 - 3,100Expenditures for Property, Plant and Equipment (684) (800)Free Cash Flow $1,758 $2,100 - 2,300
Cash Provided by Operating Activities $2,442 $2,900 - 3,100Net Income $1,638 $2,050 - 2,100Operating Cash Flow Conversion % 149% +135%
Free Cash Flow $1,758 $2,100 - 2,300Net Income $1,638 $2,050 - 2,100Free Cash Flow Conversion % 107% +100%
÷
÷
Reconciliation of Free Cash Flow to Cash Provided by Operating Activities and Calculation of Cash Flow Conversion
20 2Q’06 Earnings ReleaseJuly 20, 2006